The Growth of China and India in World Trade : Opportunity or Threat for Latin America and the Caribbean?

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Abstract

This paper studies the relationship
between the growth of China and India in world merchandise
trade and Latin American and Caribbean commercial flows from
two perspectives. First, the authors focus on the
opportunity that China and India's markets have offered
Latin American and Caribbean exporters during 2000-2004.
Second, empirical analyses examine the partial correlation
between Chinese and Indian bilateral trade flows and Latin
American and Caribbean trade with third markets. Both
analyses rely on the gravity model of international trade.
Econometric estimations that control for the systematic
correlation between expected bilateral trade volumes and the
size of their regression errors, as well as importer and
exporter fixed effects and year effects, provide consistent
estimates of the relevant parameters for different groups of
countries in Latin America and the Caribbean. Results
suggest that the growth of the two Asian markets has
produced large opportunities for Latin American and
Caribbean exporters, which nevertheless have not been fully
exploited. The evidence concerning the effects of Chinese
and Indian trade with third markets is not robust, but there
is little evidence of negative effects on Latin American and
Caribbean exports of non-fuel merchandise. In general,
China's and to a large extent India's growing
presence in world trade has been good news for Latin America
and the Caribbean, but some of the potential benefits remain unexploited.